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LAW 603 (120)
Lecture 6


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Ryerson University
Law and Business
LAW 603
Andre Serero

LAW603 Notes CHAPTER 20: AGENCY AND O THER METHODS OF C ARRYING ON BUSINESS Agent: person who acts on behalf of someone else for some specific purpose • Can have legal authority to bind principal to a contract (ex. Sales rep at car dealership binds manager/dealership to contract to customer) • Can also not have authority to enter into legal obligations (ex. Real estate cannot force you to sell house at particular price, they are just responsible for assisting with sale) Principal: person whom an agent represents for some specific purpose Agency: legal relationship between a principal and an agent Basic Rules of Agency (pg 500-511) Creation of an Agency Relationship • Express Agreement: principal and agent that sets out the terms on which the agent is appointed, including scope of agent’s authority and remuneration o If relationship is to last longer than a year, must be in writing o If agent has authority to sign cheques on behalf of principal, agreement must be in writing o Commercial Representation Agreement is a form of express agency  A manufacturer of goods agrees to allow someone to enter into contracts with customers on its behalf to sell its goods • Corporations are separate legal entities that can only act through individuals – these individuals act as agents for the corporation • Actual Authority: authority a principal gives an agent to act on its behalf o Can be granted formally (ex. Employment contract) or less formally (ex. Oral delegation of authority by a principal) • Apparent Authority: principal creates the reasonable impression that the agent is authorized to act on principal’s behalf o Contract created by an agent within its apparent authority is just as enforceable as if the agent had actual authority o Ex. President of corporation says that sales manager has authority to sign contracts to buy office supplies for corporate principal • Ratification: occurs when someone accepts a contract that was negotiated o Agent (with no authority) may act on principal’s behalf; principal is not binding to third party unless principal ratifies contract by choosing to accept obligations o For ratification to be effective, it must meet these requirements  Ratification can be expressed or implied but it must be clear  It must occur within a reasonable time after creation of contract  Principal must accept whole contract or none of it  Principal must have been identified by agent – agent cannot make contract on its own behalf/of some person agent has not yet identified and then try to find someone to ratify it  Principal must have legal capacity to enter into contract at time agent created it and at time of ratification When is the Principal Liable? The Scope of an Agent’s Authority (pg 505 for chart) • Agent may have actual authority from principal – principal becomes bound to any obligation made within scope of that authority whether or not third part knows the exact scope of the authority • Law allows the third party to rely on words or conduct by the principal that indicate to the third par: t that the agent has authority to enter into contract that third party wants to enforce • Unusual Authority: allows a person appointed to a particular position to exercise the authority usually associated with that position o Type of apparent authority; determined by reference to the authority of agents When is the Agent Liable? • Normally agent isn’t liable as agent was contracting on behalf of identified principal • Court may decide that parties implicitly intended agent to be liable – must be clear evidence • Agent can be personally responsible if it presented itself as principal LAW603 Notes o If agent fails to disclose it was acting on behalf of principal o Undisclosed principal: when agent purports to contract without disclosing that its action on behalf of a principal o Third part can hold agent/principal liable – to avoid personal liability, agent should explain role • Breach of warranty of authority: agent indicates that it is authorized to act for a principal when it’s not o Occurs even if agent thought (honestly/mistakenly) thought it had principal’s authority o Third party doesn’t bear risk of loss when it was misled by agent The Agent’s Duties to the Principal • Agent is appointed by contracts, responsibilities may be set out o Must comply with those duties and follow any instructions or can be held responsible for failing to do so • Agent may have duties that are not mentioned in contract but arise from circumstances • Agents obligations cannot be delegated to anyone else, they are personal obligations • Agency relationship exposes principal to risk of being held liable in unwanted ways; law imposes two types of duties on agents: fiduciary
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